Agency Theory And Dividend Policy:Empirical Evidence From Chinese Listed Companies

Dividend policy is one of the most important corporate financial decisions which not only relates to the distribution of investors' interests,but also involves about the improvement of the company's operating conditions and the increase of the company's value.Agency theory regards dividend payout as a method to decrease the equity agency cost in company.Dividend payout can help mitigate agency problems through reducing free cash flow.The main purpose of this paper is to empirically test whether agency can provide a reasonable explanation for listed companies' dividend policies in China.There are three detailed question to study:(1)whether companies prefer more dividend payouts or not when they have more free cash flow?(2)whether stock liquidity can help reduce the degree of information asymmetry,thus can encourage company to pay more dividends or not?(3)whether companies with good governance are tended to pay more dividends or not since that corporate governance can mitigate agency problems?This paper selects the data of all non-financial listed companies from 2007 to 2016,and Logit models and multiple linear regression models which control year effect are built.These models give empirically studies in dividend payment probabilities and dividend payment levels respectively.Finally,several conclusions are given out:(1)there is a significant positive correlation between the free cash flow and dividend policy,which reveals that reducing agency cost is one of the reasons why Chinese listed companies pay dividends;(2)there is also a significant positive correlation between stock liquidity and the dividend payment propensity and the dividend payment level,but the positive relationship between free cash flow and dividend payout is weakened under the consideration of stock liquidity.On the one hand,stock liquidity has information effect that mitigates corporate's agency problem,thus raises the dividend payout;on the other hand,the management is more autonomic in companies with high information transparency,the value of holding excess cash exceeds the agency cost,so they will in some extend decrease dividends;(3)there is a significant positive correlation between the good corporate governance and dividend policy,and the significant positive correlation between the free cash flow and dividend policy can be strengthen under good governance.The empirical results of this paper verified that the agency theory can explain the dividend policy of Chinese listed companies.